Circular No 28/2010 highlights at least three situations where interest should be suspended on overdrafts. These are:

A – Where there is doubt regarding payment of interest and/or it has not been paid after 90 days of due date.

In this case a specific provision should be raised and interest suspended unless, as described in (3) above, the net realizable collateral value continues to exceed outstanding balance of the facility.

B – When due interest on other accounts of the same customer (or group) other than the overdraft account has been suspended.

Where interest is suspended on an account of a related entity or a member of the same group of entities, the default position is to suspend interest on all group accounts unless the outstanding balance is well covered by the net realizable collateral.

However, the bank can continue to credit the interest on over draft facility to the profit and loss account. Where: -

• •The bank believes that there is low correlation between the entity and other group member(s) that have interest suspended, and
• •All other facilities of the entity are in good standing,
• •There is no guarantee between the borrower and the defaulted entity,

In this case, all group facilities that are not 90 day past due should be migrated to the “watch list” category.

C – When the outstanding balance is consistently in excess of the agreed upon limit or when the account is in debit although there is no sanctioned facility.

“Consistently” is defined as a period that exceeds 60 continuous days or a total of 60 days in any 6 months period.